Taxes and Society

There is a lot of dogma in politics regarding tax rates and general government performance. I personally have found that most people make statements about politics with literally zero data. On thanksgiving, I spent about 4 hours on the government data website – http://www.bea.gov/iTable/iTable.cfm looking at various numbers reported there. A reader, who shall be unnamed, even stopped by recently claiming that taxes were lower than 1950, conservatives only make decisions with emotion (a common claim applied to today’s Marxist authoritarian-style liberals) and even that we should have an 80% of GDP tax rate to maximize government revenue.

Why maximization of government revenue (and therefore influence) is assumed a positive goal, is something you should ask one of those authoritarians, because it runs counter to everything a government should be attempting to do. Still, I found some interesting facts about government tax taking and spending.

Are we paying more taxes than before? Taxes are taken from us in so many ways, it is very difficult to add it up. It seems from those of us experiencing it, that taxes are continually on the rise and rarely pull back even a little. Taxes are a financial load, where they are taken from does have an effect, but how much is being paid in total is important when we consider the cost to society. First I looked at the per capita tax paid into government across all sources.

So in 2012 dollars 1950 population paid on average $4000 per person into the US government. In 1998 that had increased to 14000 per person! We are definitely paying more tax than 1950. What it also means is that if you have a family of 4 and you are paying in less than 4 x $14,000 = $56,000 into the government, you are paying less than your share of those taxes and they are being taken on your behalf from someone else.

Most people don’t realize that even if they don’t write 14,000 in checks, they still end up paying that tax in the form of lower salary, higher prices, etc. and that means they have a loss of influence over cash. Loss of income (Taxation) in any form, is a strong limitation of behavior and is a general decrease of personal freedom. Said another way, when money is taken from your employer, that money was something you helped create, yet high corporate taxes mean you no longer have any control for directing the influence of that cash to your betterment. You are less powerful and free as an individual.

Many would say Jeff, that’s not fair. You need to recognize that people make more money since 1950. The GDP corrected numbers are a more fair comparison they say. This logical fallacy fails to recognize that we are still asking the government to provide 3 times more service per person than we needed only 60 years ago during our best years. This increased service represents further loss of control through added regulation and compliance with those regulations is a double hit for the economy on the same tax dollars. Paying our already massive government to create hurdles for the economy is very expensive, and we see results from it all over the country. Do you realize how many businesses have left California, and why? This also applies to the argument about whether we should ever try to maximize government “revenue” as a means to promote general welfare. Still the GDP graph doesn’t tell that great of a story either:

I’ve shown this graph before. Tax rates as a percent of GDP haven’t changed much since 1960. They peaked in 1999 under Bill Clinton but the percentage of GDP dropped off precipitously in the last two years he was in office. Combining the first and second graph with the concept that the additional spending per capita by government results in a double-hit on the economy as businesses and individuals invest more money and time toward compliance with EPA, Education, IRS, traffic laws, employment law, and many many other well-known increases in regulation. As a percent of GDP, it should be obvious even to the left that the total governmental financial load per capita follows the first “total dollars paid” graph, NOT the percent of GDP graph. This is a very important point that is lost in the discussion of tax rates – this subtlety is often missed with intent.

We are paying much higher dues for our government than we ever have in history. With each new group’s pet-peeve, excessive regulation has invaded every aspect of American life. The land of the free can’t make its own decisions even on the size of soda they buy. Obviously, compliance dollars are much harder to quantify than governmental budget dollars, so we will move on to some other interesting plots.

I’ve shown a version of this plot before also, the 4 years since Obama took office are incredibly stark considering that we are not at war. Where this money is going is going to be a bit of a surprise to some here. I found this next plot worthy of writing this blog post.

What this graph is showing is what percentage of government expenditures is being handed out as checks other than pensions or tax returns. If you get social security, social security disability, medicade, medicare, food stamps, unemployment checks, etc… this graph shows the total percentage of cash that is being handed to people in the form of checks.

Until 1970, 20 percent of government revenue was used to help those in need. By the 1970’s we had reached a full 30% That held flat all the way until Bush junior took office, he managed to jump socialist style payments to 40% of tax revenue. I haven’t studied which policies did what, but the website I linked has additional numerical detail that could allow us to figure it out. What is again clear is that when Obama took office, he jumped total payments to “needy” citizens by an overwhelming 15%. We are now paying 55 percent of total tax revenue as checks to these deemed by government to be in need -- Starting in the first year he took office!

Of the $14,000 taken from every American in some form or other, $7,700 is being handed out to the less successful. I can imagine no greater danger to economic health than this situation. Obama told us during the election that this was his intent. Remember the discussion with ‘Joe the Plumber’ where Obama said – “when you spread the wealth around, it’s good for everybody”. Now you can see the result of new policy in dollars in the graph above, what many aren’t noticing is what these payments to not work, are doing to society.

A large chunk of this money is a massive incentive to single moms to avoid college and have babies. You can make solid five figures with health care if you avoid education and work while producing babies in the US and it isn’t hard to do. We have had dozens of employees who have chosen this rout. They work for a bit and when the benefits disappear, they go home and get the benefits back. They don’t make much money and complain that they are underpaid, but the money which used to go for salary 30 years ago, is being taken out the back doors of the businesses to support these massive social bribe programs, and ever greater regulatory costs.

These people are being effectively enslaved, and when they go past child bearing age, they will have no skills, little personal property, and will end up with no ability to get out of the situation that this government created. Socialism, is universally ineffective at solving the problems it purports to address. These people, who are dis-proportionally minorities, are being effectively enslaved to low wage jobs and a long-term mediocre economy.

The same programs have reduced barriers to entry for social security disability, allowing functional people to find loopholes to permanent paychecks. Back pain, mental issues and other problems which people were forced to work through have now become passes to a soft easy life.

Worse, I don’t see many discussing these real and critical issues in a rational fashion. The media, which used to be the immune system for political corruption, largely believes in the endless flow of government cash and currently takes no time to call out pro-government politicians of any party. Republicans and Democrats both continue to march in the same direction as evidenced by the first graph in this post. Bit-by-bit and none too slowly we are reaping the increasing problems caused by these policies. It is blindingly obvious now that we should reverse course on much of the social spending and enact common sense pro-business, pro-industry reforms. Our quality of life in the US is being corroded by a bloated authoritarian central government, and is being rapidly replaced with something much, much bleaker.

Unfortunately, I apparently run in some of the same circles you do. So I was aware of the 55%, having had to use that in a debate with a left leaning robot. But not the totality of the data contained here. Thanks for a very good reference.

If the government must take money and spend it in our stead, perhaps the least efficient application of those funds is giving people checks. Worse, more and more we are giving checks to people who pay significant taxes, not just the poor. Especially with the ACA, middle class subsidies are on the rise. Not only are they inefficient, they are inflationary. Send out 50 million $1000 checks redeemable for the purchase of a car, and watch car prices rise $1000. A more concrete example is government grants and interest rate subsidies for student loans, this is the number one cause of tuition inflation.

timetochooseagainsaid

I can’t agree with the statement that such policies, by themselves, are “inflationary.” Inflation is a rise in the *general* price level. In the words of Milton Friedman, inflation is, *always and everywhere* a monetary phenomenon.

Now, it might be that relative prices would be shifted by such policies, but you can’t raise *all* prices that way.

Well, if you *print* money to finance the transfer payments you could. But that’s the printing of money.

Don’t get me wrong, you are right that such policies are very misguided. But not in and of themselves inflationary.

I found a ton of minor detail in the numbers also. Tax vs personal income has the same shape as GDP for instance. Veterans benefits have been rising heavily in recent years, yet are a very tiny fraction of the payout. There is a strange “hump” pattern in the taxes paid to social causes that visually seems to correlate to each president taking office.

patrioticduosaid

If the Government enacts laws that result in transfer payments from one group or individual going to another group or individual, and the result is the inflated price of any single good or service. Then that action is “inflationary” in the general sense that the inflated cost of the single good or service will have a knock on effect of increasing ALL prices in the average. Rome is burning while you fiddle over the definition of fire.

No, that is not right. You are assuming, in the first place, that all other prices remain constant. But that is not what would happen. The argument is that by increasing the money chasing after a particular good, you drive up it’s price. But if that money was taken from other people, you, by the same logic, *decrease* prices of whatever goods those dollars *would have* chased.

It’s very simple. The price level is simply the product of the amount of money in circulation and the rate at which that money turns over, divided by the real value of final expenditures. The price level could increase if: the rate of turnover increase, the amount of money in circulation increases, or the real value of final expenditures decreases, either each of those things separately, or together. By themselves, transfer payments do not really change any of these in general. In practice, the price level is a function of the amount of money in circulation.

There are plenty of reasons not to like these policies. One of them would be that to finance them, in practice, often requires increasing the amount of money in circulation, which *is* inflationary. But that they cause inflation by themselves is wrong.

Look, I get where you are coming from, and I agree with the spirit of what you are saying. But one needs to get the economic facts right. The Quantity theory of money is an important point to begin with, and to keep straight.

Alan McIntiresaid

“A large chunk of this money is a massive incentive to single moms to avoid college and have babies. You can make solid five figures with health care if you avoid education and work while producing babies in the US and it isn’t hard to do. We have had dozens of employees who have chosen this rout. They work for a bit and when the benefits disappear, they go home and get the benefits back. They don’t make much money and complain that they are underpaid, but the money which used to go for salary 30 years ago, is being taken out the back doors of the businesses to support these massive social bribe programs, and ever greater regulatory costs.”

As you stated, our current government welfare system perversely pays people to be poor, lazy, and stupid. Back in 1968, George McGovern proposed a “negative” income tax and was attacked as a liberal loon.
At the time I also thought his idea was leftwing nuttiness, but considering where creeping incrementalism has made the situation even worse now, It might be a good idea to drop all welfare programs, SSA benefits and VA benefits, in exchange for implement that negative tax- as a graduated wealth tax rather than an income tax. Those at the bottom would still have an incentive to work and get more wealth than they possessed. Positive rather than negative incentives would increase the total wealth of our nation.

Leonard Weinsteinsaid

The only problem I have with this post is the need to adjust the first curve for inflation. The % of GDP comes closer, but absolute levels can be misleading. Relative taxes have not increased that much, but waste and spending on social programs is a real problem, especially with increasing promises with Obamacare.

Leonard Weinsteinsaid

Hopefully people understand that while the physical tax dollars we are spending are of a similar percentage of our income, we are getting hit with additional costs in compliance with these regulations and they are not small costs. The net therefore is a big increase in government cost.

For instance, not being able to buy incandescent lights even though they are just as efficient as LED for our application is a cost. Paying for insane environmental studies to install an MRI at a hospital is a cost. Import regulations so broad that the customs officers themselves can’t figure out the rules is a cost. Frivolous lawsuits against employers requiring them to buy expensive insurance is a cost. Massive inheritance tax on business owners requiring the purchase of huge life insurance policies, is a cost. I can go on for even longer but the GDP curve is just the initial payout and doesn’t show the ramp rate of total government cost to the economy.

The reality is that we are paying dearly for the first curve and people are discussing as though %GDP is somehow the story. We have experienced real and massive tax increases and our politicians are incentivized to spend it in very destructive ways in exchange for votes.

There is one social program on the way out. The subsidy to “illegal” drug production and distribution. What is continuing to keep it in place? The cohort most opposed to welfare. So called “conservatives”.

Our fundamental problem is that the vast majority of the population believes in socialism. And those that believe in economic socialism believe they are opposed to those who believe in moral socialism. When in fact they actually (at the highest levels) co-operate.

Those opposed to both – so called libertarians – are reviled by both factions. There may be hope:

States have a moral and legal responsibility to protect drug abusers from further self-destruction. States should not give up and allow advocates of legalization to take control of their national drug policies. Governments should not be intimidated by a vocal minority that wants to legalize illicit drug use. Governments must respect the view of the majority of lawful citizens; and those citizens are against illicit drug use.

page488said

I am a conservative who believes that all drugs should be legalized, provided that those who partake are refused treatment for the related ailments.

I would also like to say, in response to your statement, “… the vast majority of the population believes in socialism,” that the majority of the citizens here may think they believe in socialism, but usually only as it applies to them personally. I think we are finding that out by the repudiation of Obamacare by the young people who thoroughly supported the program when they thought they would be only receiving – not giving.

Let me add that given the research I’m familiar with so far THC is the ingredient that works against cancer. Now why would this be relatively unknown? Well there are interest groups. It would undermine the DEA. And big-pharma stands to lose a LOT of money they get selling anti-cancer drugs (chemotherapy) that are known to cause cancer.

And then there is the anti-depressant market. The biggest sub-market of big pharma. Replaced by a plant you can grow yourself. The corruption is epidemic. Will it work for everyone? Not likely. But suppose it cuts that market in half.

I have a theory (well a hypothesis) that long term cannabis use is self medication for PTSD caused mostly by child abuse. The data is suggestive (cannabis is well known to be useful for PTSD) but has never been studied.

Why not? Well think of the government abusing abused children. It would cause a firestorm. So until we legalize there will likely never be such a study.

Legalization is coming – 58% of the population support general legalization. And about 80% support it for medical use. As the refer madness generation dies off (those currently over 60) legalization at the Federal level becomes more likely. I believe it will be an issue in the 2016 campaign as the Democrats use it to distract from the ObamaCare debacle.

Real studies will not be done until legalization. But you might want to bone up on the endocannabinoid system. It is the regulator of every major system in the body.

And why won’t such studies be done? Because if they turned out true they would destroy prohibition faster. There is more than enough anecdotal evidence to warrant further study. You should be able to figure out why it isn’t being done.

You might want to look at the studies by Donald Tashkin who was at one time an ardent prohibitionist. This will give you a start for further research:

Mark Tsaid

I disagree that the vast majority of the population believes in socialism. At least, maybe if you are speaking globally, it might be true that the (not vast) majority does, but that is likely (IMO) because the majority is still developing and can see no other way out of their circumstances (socialism does promise high). Anyway, if I constrain your comment to the developed world, and more particularly, to the US (the largest single chunk of the economy), then I absolutely disagree, in fact, I would argue most emphatically “believe” in capitalism.

Unfortunately, this is where the use of the word “believe” comes into play significantly: particularly, everyone “believes” capitalism is (in general) good, while at the same time they “believe” that socialism (in general) is bad. However, few actually understand how either works well enough to know why one should be preferred over another. As a result, people say they are generally capitalist, yet everything they support seems a better fit to socialist. That they “believe” they are capitalist is immaterial, they are in fact socialist, so your point is ultimately correct.

I can’t tell you how many arguments I’ve had with people that get angry when I call AHCA “socialist” (normally I try to generalize to collectivist) because they know how bad socialism is, and thus do not want such a program to be associated with something so awful. This tells me they simply cannot understand that guaranteeing a product to a population is at the heart of the fundamental problem with all collectivist schemes (as well as individual programs such as the AHCA). Once you guarantee a product, demand forces supply limitations that cannot be met without price increases, or, as in traditional “socialist” enterprises, rationing.

The caretakers know this, thus we have the “fix” that allows insurance companies to raise their rates accordingly, creating a product few can afford, while forcing everyone to purchase it. Once subsidies are in place to offset the high cost burden placed upon the poor, we end up with a system that is fundamentally no different than simply providing health care directly through the government, i.e., the single payer systems in place everywhere in the world (I guess, technically, ours is more fascist than anything). In fact, rationing will still occur for the very same reason as it would in the straightforward implementation: at the end of the day, supply is limited.

Rant aside, I agree with the underlying truth of your statement, people say they believe in capitalism, but deep down, they actually believe in socialism. I do not think they are openly willing (or able) to admit to such a belief, however. They don’t understand that the laws that drive economies do not magically transform when the product has such an emotional cost – they honestly think that if we try hard enough, we can make it work “in this case.”

The question I have: “Why do collectivist schemes have such a hold over popular belief?” Answer that and we can once and for all put a stop to they collective plague that continues to enslave on such a grand scale.

Loved your rant. I was thinking more of behavior than “belief” and you covered that.

Why do collectivist schemes hold such sway? I have no idea. Back in the Progressive Era the Progressives thought that government could insure moral behavior and economic viability. The moral side gave us Alcohol Prohibition. The two camps have since split. Both believe that they are diametrically opposed to each other. When in fact both believe in the power of government to achieve their particular ends. The fundamentals are the same. The particulars are different.

So why? I think it is human nature. In the Bible it is described well enough in the Book of Samuel. It may be that thinking for yourself is difficult. Most prefer being told what to do. When speaking of a particular area “here there be no rules” scares people. “What should I do if there are no rules?” I believe that is why Islam is popular. They have rules for everything. And if the environment changes how can you adapt if the rules don’t match the environment? It gets tricky. There is the yearning for a golden age when the rules and the religion matched the environment. But the match was never that good and the frictions noted at the time are lost to history.

The original beauty of Christianity is that it abrogated a huge swath of Jewish rules. Until the Church created its own set of rules. And the Protestants cut through them. Etc.

Well. I have rambled enough. And my thoughts are not particularly clear. Food for thought. I hope.

Lady in Redsaid

Yep. We have wing-nuts on both sides of the political spectrum: forced birthing loons on the right, upping the number of unloved, untrained thugs in society a generation from now…. contributors to the drug mafias extreme wealth and the cushy lobby of the prison guard unions.

At the other end, we have the anti-gun nuts, the ACA believers, the folk who think it would be “nice” if we raise the limited wage, extend unemployment benefits and expand the food stamp program. ….not to mention “Obama phones.”

Judith Curry had a very interesting piece. It is germane far beyond the issue of climate:

timetochooseagainsaid

David Shipleysaid

You could do with two more graphs: total government spending as a % of GDP (ie tax take plus deficit) and spending on welfare vs spending on other programs as a percentage of GDP. What that will show you is the true level of increase in government spending relative to overall income, and the way that infrastructure has been neglected in favour of ineffectual attempts at redistribution. The best way to reduce inequality, which is what the left claims to want, is to have a well-educated workforce producing stuff efficiently, selling it at a profit and earning high wages.
Mind you, it could be worse – you could live here in the UK where government spending peaked at 52% of GDP under Gordon Brown and Ed Balls, or in France where the entrepreneurs are leaving in droves as a result of a 75% top tax rate.

Brian Hsaid

America Lostsaid

Good read. These government hand outs are nothing more than bribes for votes with middle class money. Read up on Cloward and Piven and you’ll see the framework of the destruction of America. Sad part is, all politicians know this. They know they are investing in the total system collapse and spending and preparing for total meltdown. The charts noted are misleading if you research how CPI, GDP and Inflation is calculated. The Tea Party is America’s last hope to turn this around but if immigration reform is past American dependency and the votes attached will do what Obama noted, the transformation of America.

Bitter&Twistedsaid

Poor dear yourself. You have the noble impulse. But rather than give all your money to charity you prefer others give theirs at the point of a government gun.

But if you look carefully you will see that the incentives are wrong. And if you make your incentives wrong enough you get this:

“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as ‘bad luck.’” Robert Heinlein

Sometimes its the Jews. Sometimes its the Chinese. Sometimes its just the rich.

Greed and envy is at the base of your impulse – carefully disguised as kindheartedness. Good fellow.

Bitter&Twistedsaid

I pay my tax, M Simon, thank you. What I object to is paying it, at the point of a government gun, to people who will not (please note- not cannot) lift a finger to help themselves, but expect the state- funded by me and people like me- to underwrite their fecund and idle lifestyles.